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EUR/USD Eyes Dec. High- NZD to Benefit From Narrowing Trade Deficit

EUR/USD Eyes Dec. High- NZD to Benefit From Narrowing Trade Deficit

Talking Points:

- EUR/USD Gives Back Post-Fed Decline; December Range in Focus.

- NZD/USD to Eye October High (0.6896) on Upbeat Trade Balance Report.

- USDOLLAR Pares Decline as 3Q GDP Report Beats Forecast; Core PCE on Tap.

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EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Despite the 2015 Fed liftoff, EUR/USD may face range-bound prices going into the holiday trade as the pair works its way back towards the monthly high (1.1059); will keep a close eye on former support around 1.1090 (50% retracement) for new resistance.
  • The deviating paths for monetary policy may continue to foster a long-term bearish outlook for EUR/USD especially as European Central Bank (ECB) President Mario Draghi keeps to the door open to further embark on the easing cycle but, the Governing Council may largely endorse a wait-and-see approach in the first-half of 2016 as the non-standard measures continue to work their way through the real economy.
  • Despite the three consecutive days of advances, the DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-short EUR/USD since December 17, with the ratio working its way back towards recent extremes as slips to -1.46, with 41% of traders now long.


NZD/USD Daily Chart
  • NZD/USD may continue to retrace the decline from the October high (0.6896) as New Zealand’s Trade Balance report is expected to show a narrowing deficit in November; may see a larger correction materialize over the coming days/weeks as the pair appears to be breaking out of the triangle/wedge formation from June.
  • Even though the Reserve Bank of New Zealand (RBNZ) cuts the official cash rate to a fresh record-low, NZD/USD may trade on a firmer footing going into the next policy meeting on January 27 should Governor Graeme Wheeler show a greater willingness to move away from the easing cycle.
  • Break/close above the near-term hurdle around 0.6820 (61.8% expansion) to 0.6840 (61.8% retracement) should open up the next topside objective around 0.6890 (50% expansion) to 0.6900 (100% expansion).

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USDOLLAR(Ticker: USDollar):

IndexLastHighLowDaily Change (%)Daily Range (% of ATR)
DJ-FXCM Dollar Index12124.0512141.1212112.28-0.1352.37%
USDOLLAR Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • The USDOLLAR struggles to hold its ground and continues to mark fresh weekly lows even though the final 3Q U.S. Gross Domestic Product (GDP) report showed the economy growing an annualized 2.0% amid forecasts for a 1.9% print, with the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, unexpectedly advanced to 1.3% from 1.2%.
  • Signs of a stronger recovery may encourage the 2016 Federal Open Market Committee (FOMC) to lay out a more detailed exit strategy at the January 27 interest rate decision as the U.S. economy approaches ‘full-employment,’ while Chair Janet Yellen remains confident in achieving the 2% inflation target over the policy horizon; will keep a close eye on the Personal Incomes & Spending figures for November as the board anticipates private-consumption to lead the recovery going forward.
  • Following the failed attempt to test the monthly opening range, will keep a close eye on 12,049 (78.6% retracement) to 12,082 (61.8% expansion) for near-term support, with the USDOLLAR at risk of facing choppy price action over the coming days as market participation thins going into the holiday weekend.

*As we approach the holidays and thus illiquid markets, it's worth reviewing principles that help protect your capital. We call these principles the "Traits of Successful Traders."

Three Factors Warn of Perfect Storm in FX Markets - Caution Advised

Read More:

Price & Time: USDOLLAR - Negative December Seasonality A Dud?

DAX 30: The Euro, the Force Is Strong With This One

USD/JPY Risks Larger Pullback on Dismal US GDP, Sticky Japan CPI

Canadian Dollar Hits 11-yr Low vs. USD on Wholesales Trade Data Miss & Macro Factors

--- Written by David Song, Currency Analyst

To contact David, e-mail Follow me on Twitter at @DavidJSong.

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